- Feb 18, 2010
- United Kingdom
In that case, a planned economy has never actually existed. No single entity ever actually controls the entire economy, even leaving aside the practical issue of internal division and internal competition (again, the state-managed sections of the Soviet economy were often highly decentralized and overcompetitive) there are always going to be areas of the economy that are outside of state control, whether formally or informally. A collective is nominally an independent economic entity, a black market dealer is practically an independent economic entity.A planned economy is one entity controlling all goods and all supply chains and trying to keep them all running.
A planned economy is exactly what the name suggests, an economy that is run in accordance with large-scale economic plans. It's a relatively clear definition. However, my point here is to illustrate that the actual amount of planning required in a market and planned economy is exactly the same. Someone, somewhere, has to sit down and make the decisions, and they can get it wrong. How likely they are to get it wrong is largely a product of the information available to them and their own incentives.
Okay, let's take this at face value.The problem was that the plans simply didn't work.
Do you think market economies never suffer from mismanagement due to market failure or bad incentives? Because I lived through 2008. I know that's not true. That one can't even be chalked up to incompetence, it was just willful malice. The people responsible got away with it, there was never even a question of corruption because, in a market economy, what they did is entirely legal.
Like, we're getting into more reasonable territory now in terms of what distinguishes good decision making from bad decision making, as opposed to the market just fixing everything somehow, but this should make it immediately apparent how much this idea of intrinsic market efficiency doesn't make any sense. Even if centralized economic planning weren't happening in market economies, you don't even need centralized economic planning in order for people to make bad decisions. You just need bad incentives. If it is possible for people to make money in a way that is detrimental to the wider economy, then they will, and again, you can't even call it corruption because what they're doing is generally legal.
And all this is based on the fallacious idea that market economies are self-contained and represented only by a handful of wealthy countries. They're not.
Why is that a problem?Did you know that there was a plant making copper wires that bought copper on the world market and sold the wires there and ended up selling the wires for less than the copper material worth ?
Most developed countries subsidize some relatively unprofitable areas of their economies. When you see small family-owned farms in western Europe or the US, those farms probably wouldn't be profitable on the quote/unquote global market. They can exist because of government subsidies and because their competition is heavily limited by protectionist import tariffs. There are extremely bad examples of this. In the US in particular, a lot of subsidy money goes to large commercial agricultural businesses as a form of corporate welfare. But fundamentally, it's incredibly obvious why these countries subsidize agriculture, agriculture employs a lot of people and it maintains a lot of people's way of life. The social harms left behind if the agricultural sectors suddenly died off would be more expensive than subsidies. More importantly though, the availability of domestically grown agricultural goods protects the availability of food, and food is important.
So let's go back to this copper wire factory, and let's take the story completely at face value. If they were buying copper using imports, then whoever was importing them was paying import duties. That means a significant proportion of the price of that good is being recouped as government revenue. Similarly, if the copper wires are being exported that's another round of export duties. If that factory is state managed, this may mean it is in effect profitable, or at least makes a small enough loss to be worth the cost of maintaining the infrastructure and the livelihood of its employees. Secondly, it means that there is always a degree of surplus capacity in the production of those copper wires. If another factory making copper wires suddenly explodes in a freak copper accident, this factory can simply redirect its products to mitigate the reduced supply.
Now, I don't know what example you're talking about. Maybe it was horrendously mismanaged (there are plenty of examples of similar mismanagement in market economies) but the criticism you've made isn't really a criticism. Sometimes, it is worth more in the long run for an unprofitable business to be allowed to exist.
In the 1980s, the Thatcher government in the UK, which was heavily into this ideology of the free market solving everything, decided to suddenly stop subsidizing the domestic mining industry. From a purely neoliberal market idealogue standpoint, it seems like a good choice. Mining in the UK wasn't profitable so why should it be allowed to continue? But I think most people at this point understand that the way it was handled was terrible. It was needlessly cruel, it was deeply, deeply destructive to a lot of communities and it left behind a social cost, both financial and cultural, which some regions are still paying to this day.
If you go to many areas of Russia today, you can probably find infinitely worse situations. Towns built around an industry that was later deemed insufficiently profitable and shut down, leaving the people there with no livelihood, no means of obtaining self-respect or participating meaningfully in their society, no means of earning enough to escape to a major city and find work or education and nothing to do except kill themselves with alcohol poisoning. Even leaving aside the obvious humanitarian problem, those people cost money. Maintaining them costs money, and fixing their problems costs vastly more. The market cannot resolve social problems like that, because people who don't have money are invisible within the decision making process of a market economy.