> Central planning has always proven to be an inefficient way to allocate resources
Amazon seems pretty efficient. ;)
Amazon seems pretty efficient. ;)
I've often wondered about the contradiction wherein it's argued that the economy thrives on competition and yet corporations larger than many nation states never apply the same model internally.
(I'm aware there are efforts in some companies at creating "internal markets" but never close to the scale of market forces that exist externally to the company)
Except withering and dying for a company is not a humanitarian crisis, but it is for a country. A company can also fire an underperforming team member, or ditch an entire department. Where as terminating underperforming citizens, or unneeded communities is generally frowned upon.
Free market or centralized economy, at the end of the day someone is making an executive decision about how resources are allocated. Whether you believe that executive person (or committee) should be acting in the best interests of the public or a group of shareholders is a matter of principle, not logistics.
In theory, a failing government is replaced by a different government. In practice, whether voters successfully identify problems and pick a better winner is an open question.
Once a company gets large enough, some of it’s inefficiencies can be caused by similar issues that centrally planned economies face, however the two are very different. Amazon still has to contend with market forces, and its resource allocation decisions have to be mostly aligned with that. In a centrally planned economy, resource allocation only has to align with the central plan.
Amazon also doesn’t have anything even close to the same supply chain complexity of an economy. I’d suggest you read ‘I, Pencil’, which convincingly asserts that not a single person knows how to make a pencil.
China’s tech boom largely comes from entrepreneurs innovating in a market that is in many ways under-regulated, which has been a very efficient environment for those entrepreneurs to operate in. If the communist party wants to take more control of that industry, it’s hard to see how it’s going to do that without impacting efficiency.
The difference between centrally planning your household finances, a company or a whole country is really just one of scale. Because the plan can allocate internal resources arbitrarily so long as the external forces are matched out, it's possible for this internal allocation to be wildly imbalanced. But if you're personally overspending on some item, you're going to feel that pretty quickly, while a corporation might sink a lot of money into a doomed project before it gets axed, and a country can spend decades before correcting. The larger an organization is, the longer it takes for a pressure felt at just one part of the organizational border to propagate far enough that it affects the overall plan.
This is actually less a problem of central planning than of an aversion to change the plan. In a market, there is little attachment to other participants, and if a better supplier for something pops up, nobody has any qualms about switching to them. But most companies would hesitate much more before cutting an internal department than they would if it were just a question of hiring a different contractor. Because changing the plan feels like admitting failure, inefficiency creeps in.
So central planning could actually work, but you would have to continually adapt the plan to changing circumstances. The end result might look a lot like a market economy, though.
This doesn’t scale up from a household scale to an economy-wide scale for numerous reasons, but probably the most significant ones are:
1. The non-existence or competition means that inefficient enterprises cannot fail.
2. The mind-boggling complexity of centrally planning the supply chain of an entire economy unavoidably introduce massive inefficiencies.
If a household wants more bread, they can just allocate more resources to buying bread. But if I want to plan for an economy to produce more bread, I need to individually allocate more resources to every single element of the bread supply chain. There’s no way a central planner could be expected to do that with the same efficiency as market forces could.