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Thursday 27 January 2005

Central Planning and Big Business

Don Boudreaux quotes Chris Dillow:

We all know a centrally planned economy is a stinking idea. So why is a centrally planned company a good one? (This question was raised by Hilary Wainwright years ago in Arguing for a New Left. Disappointingly, it’s been ignored.) Hayekian arguments can be applied to company bosses as well as central planners. For me, what’s really offensive about capitalism isn’t (just) the huge wages paid to bosses, but the fact that their claims to justify such rewards — that they are capable of managing massive institutions — are utterly unfounded.

Boudreaux disagrees:

Dillow’s question is fair, but the answer seems to me to be obvious: private companies, even massive ones, are private. Shareholders voluntarily buy (and sell) stock in these firms: creditors voluntarily lend (or not) money to these firms; workers voluntarily work (or not) for these firms; suppliers voluntarily supply inputs (or not) to these firms; and consumers voluntarily buy goods and services (or not) from these firms.

Boudreaux is right inasmuch as the money earned by Titans Of Industry is not earned at the point of a gun. But he doesn’t address the question of whether the central-planning model is a good way to run a company.

Think of your average corporate environment: Everyone uses the same computer and the same software, because that’s efficient. Everyone gets the same chair — except those in Success Track #6 and above, who get nicer chairs — because that’s efficient. If you run out of toner and the supply department is also out of stock, you won’t be printing anything for weeks or possibly months, because (usually) it is entirely forbidden to go down to Office Depot and buy some out of petty cash. Not being able to get work done so the company can save $4 on toner is, you see, efficient.

Et cetera, et cetera. Unhappy companies are all different. If you’ve ever worked for a large company, insert your own example of horrible inefficiency in the service of Procedure here. Scale the average American company up a million times and give it an army and ICBMs, and what you’d have is largely indistinguishable from the Soviet Union.

As everyone participating in such a company is doing so voluntarily, there’s no real moral problem with this. But it’s still central planning, and it’s still going to be inefficient.

Posted by tino at 14:09 27.01.05
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