Planned Economies
Some thoughts on inequality, central planning, and the market.
Gross economic inequality is undesirable for a number of reasons: in a limited sense, it is bad because it creates a system in which economic classes become static, and the mobility between them is greatly reduced. The very nature of inequality means that those who have access to certain resources will have an advantage over those who do not, placing them in a better position to entrench this advantage.
Low prospects of improving one’s own station are deleterious both on an incentive and a social basis—resentment between the haves and the have-nots typically follows. Any idea of a “shared experience” or commonality between the wealthy elite, the middle class, and the working class is unlikely in such conditions, and a growing sense of detachment and distance forms in the wealthier economic groups, who have rarely had to “pull themselves up by the bootstraps” to attain their wealth and status in systems with stagnating class mobility—this is inevitably the same social and economic group that tends to feed into the political class.
This, in turn, creates a political elite who have little understanding of what it's like to experience poverty or powerlessness but ostensibly represent the will of people from those classes. Obviously, having people represent you who have little to no real knowledge of your peculiar circumstances, wants, and needs is not going to lead to beneficial outcomes.
But gross inequality is undesirable for another reason: any society that aims at establishing peace, security and order risks undermining the very promise it sets for itself by allowing gross inequality to fester. As the chasms grow, it creates the conditions for populist movements and certain shrewd “agitators” who take advantage of a very real problem in order to garner support. The solutions they offer are often revolutionary in nature: the opposite of peace, security and order.
That certain kinds of redistribution are necessary to a) increase the welfare of the least well-off and b) decrease the inequality between the classes, is obvious to most people who understand that even if the unhindered market were the best mechanism to increase the general welfare of the population, the inequality it creates often leads to undesirable consequences, a few of which I’ve mentioned above.
But there is a tendency among those who seek economic justice and an end to inequality to court ideas that seem to promise silver-bullet solutions to these age-old problems but, in effect, often do quite the opposite.
This brings me to central planning.
Those who advocate for a centrally planned system do so in the belief that a centralized, socialised economy would be better suited to eliminating the inequalities that are a result of the capitalist mode of production and better suited to increasing the welfare of the least well-off (living in an equal society in which everyone is poor is obviously untenable).
The simplest arrangement of the above is one in which the state owns the means of production, determines what goods are manufactured, how they are distributed, and what wages each worker earns—all in line with the state’s social goals.
How wages are determined would depend on what the state prioritises: the ‘welfare’ of the workers (each worker earns enough to satisfy his particular needs), the labour contributed (wages proportionate to one’s labour), or a truly resource-egalitarian approach (workers each earn the equal amount regardless of need or labour contributed).
Eliminating Inequalities
It seems to me that, rather than eradicating the inequalities found in the current system, the command economy simply replaces it with a different kind of inequality. As the means and manner by which goods are manufactured and allocated and wages distributed will necessarily be determined by someone (in this case, the bureaucrats), the economic elite are simply replaced by the political elite.
One might argue that the elite in this sense is not the same as the economic elite, who become capable of entrenching their positions through accumulated advantage, which they hand down to their offspring (through high levels of educational attainment, for example).
One might say that, because this minority will be elected by the majority, any advantages they may gain are “fair”, and in any case, they are accountable to the majority.
But the distinction here, I think, is not as clear as it appears at first glance. Like in any democratic nation, there will be those who are better suited to public debate, more adept at navigating the ebb and flow of public opinion, at appealing to certain base instincts, ingratiating the will of the people, and to earning their approval. There will be men and women who have surrounded themselves with electioneers and interest groups willing to campaign for them to bring the public gaze to their candidacy.
In truth, universal suffrage means that everyone gets a vote, but not that everyone can or will be voted for. This would, of course, create an impossible situation to deal with—and forming majorities who can claim to be representative of the people’s will would never occur.
When you get to the ballots, you’re offered a limited choice of candidates, all who had the means and the will to make it onto that page. And they’ll certainly have the will for it. The appeal of having control over how material resources are allocated, labour rewarded, tasks determined and prioritised, and goods distributed cannot be quantified.
Such power—and there can be no doubt that gaining control of an economy in which its productive capacities are entirely centralised—would far eclipse the power of wealthy landlords and billionaires we see today and attract men and women whose interests may lie contrary to the will of the majority.
It seems fairly obvious, from this basis, that those who are able to attain power would a) have an interest in ensuring that they are adequately rewarded b) be best placed to ensure that they retain such positions. Even if one operated with an egalitarian welfare distribution (equal resource distribution regardless of task), the political advantage of government officials would inevitably translate into an economic advantage—prioritising allocation of goods in a preferential manner, constraints on labour in line with their own biases, etc.
A common rejoinder to this is based on a sentiment that can be traced back to Rousseau: man is born good; it is society that makes him bad. As a result, if we radically restructure the capitalist organisation of society, these shortcomings (avarice, selfishness, fraud, lying for political gain, etc.) would be suppressed, if not extinguished entirely. Once we change the social conditions in accord with the goals set forward by socialism, we shall see a radical change in human nature.
Not so long ago, Peter Singer wrote a nifty little book entitled “A Darwinian Left”, in which he highlighted some of the errors that inform much of the current left’s thinking and how it often stands at odds with modern science—particularly with regards to human nature. Obviously, how society is structured has an influence on how its denizens act, but many things remain the same. And it is those things that stay the same that undermine this idea of malleable human nature: hierarchies tend to emerge; man is both social and tribal; even in completely different cultures, we see similar patterns emerge (sexual restrictions that emerge as a consequence of marriage, maternal care of children); and in almost every society a minority rules over a majority. This is not to say that society ought to be structured in such a way, merely that when these patterns and hierarchies do emerge even in societies that have aimed at doing away with them, we shouldn’t be surprised.
Certain traits like greed, envy, ambition, and egoism that a Darwinian might regard as inevitable aspects of our nature, a socialist might regard as merely the product of living in a society in which the means of production are privately owned.
Of course, the idea that man is good and the economic organisation of society is to blame for the moral failings of its denizens seems even less likely when one considers that this social organisation wasn’t imposed upon us by some outside force beyond the scope of humans—it is a consequence of our own behaviour.
It may even be the case that the slow accumulation of advantages fostered by the capitalist system emboldens the less desirable traits, allowing these characteristics to “divert the current,” as it were, of human history. Again, this doesn’t seem like a problem that centralised economies can solve—how would they? Self-reinforcing hierarchies would rapidly emerge, as they have done in the past, creating a ‘political class’ that is remarkably similar to any other elite, but more dangerous for the fact that they can claim to be ruling as a result of the will of the people and in the interests of the people. A consequence of this, of course, is that those who question their rule are questioning the will of the people too.
But these are just some general comments on the inequalities that are bound to arise as a consequence of establishing a centralised economy. One might try to circumvent these issues by legislating and legislating until the members of this political elite are surrounded by limitations on their power, but this won’t change the fact that at the end of the day, they will necessarily have the ability to determine how the economy functions, and your place in it.
The second, less general issue is that centralised economies inevitably crumble under the weight of their own inefficiencies.
Before I detail some of the issues I perceive in these kinds of economies, I just want to make some distinctions and introduce some caveats: countries that move from feudal nations to industrial nations will absolutely see robust growth in their development—this will manifest in an increase in wealth, access to resources, and general welfare. Highly centralised economies, like the USSR and China, saw great success in industrialising their economies by devoting the focus of their economic resources to this endeavour (though these programs came at a huge cost).
But it seems more likely that these nations were able to see such massive advancements in industrial progress because they were so underdeveloped to begin with, allowing for greater growth than, say, an already developed liberal democratic state which has already moved along the laborious developmental path. That this is true seems to be borne out in the rapid industrialisation of South Korea and Japan, who used a mix of mercantile capitalism, incentive-driven markets, public and private sector investments, and developmental policy to attain their results.
It seems likely that future developing nations, who take the industrial path and follow the blueprint of their predecessors, will also manage remarkably rapid transformation!
Value, Goods, and Pricing
From time to time, you’ll see an article appear (especially during a crisis) arguing for temporary price controls for certain basic goods. Bread, milk, grain, vegetables, toiletries— things that we deem essential for our wellbeing. These articles usually result in a string of counter pieces, usually from libertarian circles bemoaning yet further government interference into the market, crushing its efficiency. The problem, usually, is that both sides are arguing from very different perspectives: the statist directly prioritises welfare and will curb the market to attain it, while the libertarian thinks that general welfare is a consequence of the market.
I think that in times of crisis, there are good arguments to be made for price controls—nobody, I think, will disagree that the government stepping in to reduce COVID test pricing was justifiable (perhaps from both sides of the aisle and for different reasons). But temporary price controls are not quite the same as pricing being determined by a centralised authority as the norm!
Market pricing acts as a pretty good signal for an important concept: scarcity. You could probably track the supply and demand of goods simply by looking back at the recent supply-chain crisis and the effects of COVID in general. The price of a particular good consists of its cost in addition to the value the market attributes to it—what people are willing to pay. If people aren’t willing to pay more than the initial cost, then most would be unwilling to dedicate their time and labour to produce the good.
Calculated into this cost are all of the ‘events’ that went into the manufacturing of the goods, which includes the research and development, the sourcing of materials, the transport of the raw materials as well as the materials themselves, levies and fees, rates, rent, etc., and then, finally, the labour and the complexity of labour that goes into manufacturing the final product itself. Following that, the shipping of the final product to wholesalers, the movement along the ‘chain of custody’ until it is finally presented to potential buyers.
The final price tracks changes that may occur in any one of the events described above. For instance, during the harder COVID lockdowns, there was a huge reduction in the number of commercial flights available. As a result, many products that are often shipped in the cargo holds of these flights were delayed, sometimes for weeks at a time.
This meant that while the demand for these products remained unchanged, the supply was severely constrained, creating scarcity. This scarcity was apparent not just in the goods themselves, but in the flights that were available! Fewer flights meant that companies that needed to ship their goods out would have to compete for the limited space. The pricing mechanism, in this case, being a strong indicator of an increase in demand and a limit in supply—prices went up as availability became reduced.
The various COVID protocols at airports and depots meant that the cost increased, too. Parcels were checked, sometimes flights were delayed resulting in extended periods in storage (incurring charges all along), further tariffs were added, and various other minor events that all added to increase both the cost and constrain in supply.
Centralised systems that get rid of pricing mechanisms altogether lose this important signal—and it’s important in a number of ways: if the cost of manufacturing outweighs the demand (and subsequent value ascribed to the good), it would be better to divert the resources (material and labour) to producing other goods. These other goods might contribute greater to the welfare of society as a whole, and the increased efficiency may result in further additional goods of different types and quality being manufactured, increasing the welfare even further.
Determinations of this nature are hard enough in societies that have access to pricing data, but for those without the pricing mechanism at all, the likelihood of making accurate decisions becomes slim.
State’s which do rely on pricing, but pricing determined by some central authority, run into the same problem: the set price and the actual cost and ascribed value may coincide for a certain period, but innumerable variables will start to affect the cost and value, creating a disconnect between the costs, and what people actually pay for it. Again, resources that may be better used elsewhere end up being diverted into inefficient goods. Or constrained supply of certain raw materials may result in scarcity that isn’t reflected in market price, resulting in shortages—something not uncommon in these systems.
Competition
When state-run enterprises fail, they normally reshuffle the hierarchy a little and get back to business. If the reason the enterprise has failed is that it is structurally unsound, then the root of the problem will not be solved by changing the head. And yet this is usually how these things happen.
Market socialists have theorised about ways to replicate market competition, accepting that it is an important mechanism for increasing efficiency. One might attempt to replicate market conditions by setting competing state-owned agencies against one another, forcing innovation to the benefit of the consumer. But if you set four or five state enterprises against one another, each one of them (even the least efficient) is drawing its finances and resources from the state—from the people. Rather than monitoring them individually and comparing their successes, a more accurate approach would be to view them as an aggregate. The least efficient adds to the costs of the most efficient as their finances come from the same place. It’s as if one company set up a bunch of teams for R&D and pretended the teams that failed didn’t add to the cost of the project as a whole.
Compare these approaches to the mercantile developmental policy of South Korea, who quickly realised that trying to get entrepreneurs in line is like herding cats, but it’s far better to have them than not. Building infrastructure around private companies, using subsidies as incentives, forcing them to meet minimum export quantities to prevent rent-seeking (and ensuring these companies are competitive), and allowing them to operate for profit (the best incentive of all), results in downstream public goods: industrialisation, growth in jobs, and an increase in general welfare.
The above is just a sketch of some of the problems I see with centralised systems, but there are many more! The simple distribution of resources creates its own issues—if we distribute according to equality of resources, this might seem unfair in that some people are happier with far less than others. But if we distribute according to their wellbeing/welfare, then some may be allocated a far higher number of resources simply because they need more to satisfy their basic needs. And that seems problematic, too, given the labour that goes into creating such resources. Finally, not all are able to contribute as much as others, and yet they require the same amount of goods to lead satisfactory lives (perhaps due to disability, sickness, or chance and circumstance).
And yet these complicated questions are to be answered by elected bureaucrats? I don’t think so.