Markets stink. Surely there
is
a better way?
Suppose we had a benevolent dictator with a decent bureaucracy (office
staff) capable of finding out what peoples preferences were, and then
of
constructing the corresponding preference map for the whole population,
and then of ordering production levels up to correspond to this
preference
map. Wouldn't such a command or controlled
economy
work just as well as the market? Furthermore, wouldn't such a
benevolent
bureaucracy also be capable of giving greater weight to the needs of
the
poor than the rich (who have most of the "money votes" about what is
made
and supplied in a market economy)? In short, why couldn't a
proper
and benevolent communist system work?
The answer is that in principle there is no logical reason to
suppose
that it could not. Communism should be able to work, at least
according to these basic economic principles. However, in
practice
it seems that such systems do not work (or at least, we have not yet
learned
how to make them work). Why not?
There are, of course, a number of reasons which can be
advanced.
Among the more obvious are as follows:
- peoples' preferences change through time. They are
not
given
and fixed for all time. As they change (at least partly in
response
to what is available and what has happened in the past), so will the
optimum
allocation of resources (factors of production) to meet these changing
demands. Since we do not yet know very much about these changes,
it is difficult, if not impossible to anticipate them and organise
production
systems accordingly. The market system allows for experiments and
flexibility and generates a self-regulating system rather than one
which
requires constant and vigilant control. External control systems
are both expensive (consume a lot of resources) and more likely to be
exactly
wrong than roughly right.
- people will not necessarily tell us (the bureaucrats
managing this
command economy) what their preferences really are - they may
not
even bother to think about what they are unless there is a point, or
until
they get a chance to try some alternatives and test their preferences
to
see if their choices really are preferred.
- producers cannot necessarily be relied on to do their best in
response
to orders rather than incentives. But, if we are to try
and
design our command system so that it incorporates the appropriate
incentives,
we will end up essentially duplicating the market system (which works
more
or
less automatically) with an expensive and wasteful bureaucracy.
Same
thing aplies to trying to duplicate the market economy for consumers.
- even benevolent dictators have an apparent habit of becoming less
than
benevolent, and more driven by self-interest than by the public
interest.
They can only be encouraged to stay benevolent if there is some
competition
for control - some democratic veto on the commanders in a
command
economy. This necessarily involves challenge to the present
governors
views about the preferences to be met and their priorities.
Otherwise,
the command economy (and associated political system) must break
down.
Government requires the continual consent of the governed, otherwise it
will break down. There is no once and for all answer to whose
preferences
for what should count the most (see 1 and 2 above). So external
and
imposed answers to the population's preferences will cycle and
oscillate.
As a consequence, command economies tend to get it wrong most of the
time.
- Such attempts at command economies tend to find themselves in
competition
with market-based economies. This economic competition
translates
into political competition. But the economics of the
command
economy tend to be less efficient (paying more and using more for less
output and income) than market economies, for the reasons given in 1,
2,
3 and 4 above. So there are fewer resources for the pursuit of
political
objectives and political competition with the rest of the world.
Having said that, there are also strong reasons why we should
choose to alter and regulate the market economy - through
government.
In fact of logic, we will have to - to fill the necessary roles and
responsibilities of government:
- policeman to make and uphold the common law,
define
and defend
property rights, enforce contracts, outlaw theft, corruption etc. (The
long arm of the law is neccesarily attached to Adam Smith's invisible
hand)
- mechanic/pharmacist to provide the necessary
lubricants and
medicines to make sure society (and its economy) work properly -
especially
the supply and management of money
- engineer/doctor to ensure that the design and
functioning
of the economy is as acceptable and socially desirable as possible -
this
includes the design of the methods of supplying public goods (like
defence)
which are different from normal, private, goods and which the market
will
tend to undersupply, and dealing with externalities - side effects of
market trades (like pollution and congestion) which are unintended and
uncompensated (un-penalised) in the market system and thus need fixing
and correcting by the public sector - government.
- judge to preside over the law and make wise social
choices
and decisions
on our behalf
- (priest?) to define and defend our morals?
Comments or Suggestions?
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