The year-end issue of The
Economist includes a nice essay on planning. “Beware of the Borg” (title in print edition). Everyone
plans; plans can be coordinated by markets or usurped by top-down grand plans.
The latter often fail, ending in calamity and often much worse. We have heard
about Venezuela, USSR, North Korea and many more. Top-down plans fail because
utopians ignore the fact that knowledge is complex and dispersed. Promises are inevitably broken, people go hungry, and autocrats resort to terror and corruption to stay
in power.
In the real world, specialization and exchange prompt resource
allocation and innovation, but only if rights are credible and secure.
Just as no one person can make a pencil, and yet pencils are
everywhere, supply chains are everywhere. Supply chains are emergent. They are formed
and maintained by savvy entrepreneurs. Add that there are supply chains for
ideas and information. Commodity supply chains begin with supply chains for
ideas. We all search for useful
information all the time.
Just as entrepreneurs decide what to make vs what to buy,
they also choose what to make and buy where.
Sometimes the “where” question evokes various shades of nearby as part of the
answer. The cities we get are actually a complex mesh of supply chains,
including supply chains for ideas.
Transactions all across any chain are most likely where there is trust; trust is established when and where there is communication. Communication can be electronic or face-to-face. All of us pick the blend of communications channels that works best for us. In so doing, we pick a location that is best for the chosen blend.
Hayek (and many others) have argued that top-down planners
cannot accomplish any of this. They could not replace the market’s discovery
process and would always be badly informed. They are also (by definition)
highly politicized which makes a bad situation worse.
All this is clear enough but utopian romances are hard to
dislodge. Class struggle and the romance of righting historical grievances are
always a problem and always fanned by opportunist politicians.
The Economist’s survey also links an old debate about markets and planning with a new one (a new utopian romance) about the potential of "big data" to change the old debate. David Gelernter argues that big data will not replace human imagination or ingenuity. The Economist also quotes Alex Tabarrok: "the problem of perfectly organizing an economy does not become easier with greater computing power precisely because greater computing power makes the economy more complex." Do read The Economist's whole essay.
Posts
