Easterly Contra Galbraith
By Bryan Caplan
Back in the sixties, Galbraith famously argued that East and West were converging. The East had government central planning. The West had corporate central planning. Same difference, right? In his interview with Arnold and Nick, Bill Easterly begs to differ:
[T]he metaphor of the large corporate hierarchy has led to a lot of misunderstanding about planning… Henry Ford’s success in automating production and building a large corporation on top of the assembly-line production of cars was actually one of the inspirations for some of Lenin’s methods and the attempts to design a planned economy in the Soviet Union.
But what was missing – what Lenin did not get, and what all the subsequent planners who have been inspired by what appears to be corporate planning did not get – was that what corporations are really doing is searching for something that works. And when they find something that works, they try to reproduce it on a very large scale… The corporate planning and the large corporate hierarchy – what that is all about is really just scaling up the little thing that you found that does work, that does seem to meet the needs of consumers at a profit for the owner of the corporation.
But you always need the chaos and anarchy of the free market to keep searching for what works and to keep checking on whether the solution that you are scaling up is still working. So large corporations often turn into dinosaurs, because their original idea – which originally was a brilliant idea about how to do things right, how to make a great profit from meeting consumer needs – gradually becomes obsolete, and then they can’t adjust.
…But what the planning mentality, as a whole, always misses is that you can’t use planning to find what works. So if you build a whole system like foreign aid around planning, you’re never going to find things that work. Because the planning is only a method for scaling up something that you have already found to work.
Two months ago, I asked:
Imagine the old Soviet Union gave up on manufacturing, specialized in
natural resource extraction, and invited CostCo to set up 10,000
warehouse stores in the Evil Empire. I think it’s clear that this
would have been a massive improvement for Soviet consumers. But how
much of a difference would it have made? Would a USSR that swallowed
its pride and outsourced its brain work and customer service still be
Easterly’s interview makes me wonder how he would answer. After all, doesn’t his story suggest that central planning would work a lot better if it focused on rote resource extraction, and outsourced learning-intensive production to the capitalist world?
Update: Easterly responds via email.
I still don’t think it would have worked to save the Soviet Union. “What works” is constantly changing in response to other social changes. Just think of the fall of K-Mart that accompanied the rise of Costco. And natural resource extraction technology is a LONG way from static over time, and what technology you need at any moment depends on the constantly changing conditions of each field. Central planning only works OK to mass produce low quality over-expensive stuff for people who don’t have much choice but to take it, like the army during wartime or the long-suffering consumers of the USSR.