Sunday, August 26, 2012

Central Planning or Democratic Control?

In their ongoing series about centrally managed economies, Acemoglu and Robinson make this point about why Africa failed to develop centralized states:
In a previous post we examined how the Greek Bronze Age was associated with the rise of city states and nascent urbanization. Many of these, such as Knossos, Mycenae, Pylos and Tiryns, are on every tourist schedule today with impressive ruins and ‘cyclopean walls’ (so called because they were so large that they could only have been built by the legendary Cyclops). Archaeologists have suggested a theory linking the use of bronze to political centralization. Copper and tin are both scarce and need to be traded, their supplies can be monopolized, and so can trade. This seems to have created both the incentive and the opportunity to concentrate power and develop urban centers, for example in Knossos in Crete which was the core of Minoan Greece. While the Greek Bronze Age cities were destroyed around 1200 BCE and some, like Mycenae, never re-emerged, many, such as Athens re-emerged on the same spot so the early centralization of the Bronze Age may have left a path dependent legacy.

Not every part of the world experienced a Bronze Age, however. Though some parts of Africa, like Benin, are now famous for their bronze work, in general Sub-Saharan Africa jumped right into the Iron Age without ever passing through this intermediate stage.

In contrast to copper and tin, iron is very widely spread as the great archaeologist Gordon Childe put it “cheap iron democratized agriculture and industry and warfare too”. So the jump to Iron Age technology may have impeded the development of states in Africa by making it more difficult for elite to concentrate and monopolize power. Africa never experienced the nascent period of political centralization that Europe did during the Bronze Age, perhaps also with a path dependent legacy.
Earlier they make the case that central planning is not about efficient allocation of resources, but control over those resources:
Essentially central planning is not about the efficient allocation of economic resources, it is about control.

Central planning maximizes the extent of control that the state, and the people running the state, exercise. The desire to control others is a constant in history and is part and parcel of the construction of states. If the state can grab all the land and resources and control who and on what terms people get access to them, then this maximizes control, even if it sacrifices economic efficiency.

This sort of economic and political control — not Marxist ideology — is what central planning is all about. This is not to deny that Marxist ideology supported and legitimized central planning in several 20th-century societies. But it is to emphasize that the emergence and persistence of central planning is often a solution to the central economic and political problem of many elites: to control and extract resources from society.
Which is true enough, as far as it goes. This is exactly what opponents of central planning say. That's why the "free market" is all about "freedom," correct? But they neglect several important points, however.

There are a few errors in their statement. One, the idea behind Marxism was that workers would control the means of production, not an all-powerful state, so to say Marxism itself is all about centralized control as it was in the Soviet Union is perpetuate an inaccuracy. The Soviet state appropriated Marxism as a means of control, bastardizing it in the process. Also, it should be noted that every Marxist revolution to date has been in peasant societies, not in developed industrial societies.

More to the point, as anyone who has read Douglas Rushkoff's Life Inc. knows, the invention of the corporation was for the exact same purpose - to centralize control of production into the hands of elites! As Rushkoff also tells it, based on the work of Bernard Lietaer, centralized money was also invented to serve this purpose - centralized control by private banks and government elites. A similar point is made in Debt: The First 5000 Years; that official money such as coins develops as a means for centralized states to assert control over trade, particularly as means to wage war.

I think it's obvious that having multiple entities selling identical goods while extracting maximum profits along with wall-to-wall advertising is terribly inefficient (aren't you glad you're helping pay for the millions that "celebrity endorsers" get?). We accept those tradeoffs, however, in exchange for other benefits of having multiple vendors (innovation, competition, flexibility, etc.). And despite the inefficiencies, goods have been cheap and plentiful enough that there has not been a problem. But as Thorstein Veblen pointed out, there is an inherent conflict in production to satisfy genuine needs versus production for profit. For example, profit requires a certain level of scarcity; overproduction causes profits to fall. It also tends to bring about things like shoddy workmanship and planned obsolescence on the part of the profiteers. Much of our goods today  are of extremely poor quality, and are practically designed for the landfill.

Theoretically, producers competing in an open marketplace is a means to keep prices in line. But today almost all sectors of the economy are dominated by a handful of big producers at the macro level. Competition seems pretty scarce (many towns have no other vendors besides Walmart). Yes, stuff is cheap at Walmart, but does that have to do with private competition?

Mass production and cheap overseas labor are what makes good cheap, and what's keeping them cheap are the low wages Americans make - if the stuff got any more expensive, people wouldn't buy it and there would be no sales. But to say that these items would be more expensive under a central planning regime I don't think is accurate. As I noted earlier, Walmart is an entire economy within an economy, and centrally planned down to the tiniest detail. To say there is no central planning in our economy is a deliberate fiction. It's only a question of where it is done and who benefits.

Finally, and perhaps most importantly, as we noted extensively in this article, capitalism has devolved into a system nearly as centrally controlled as communism was! The only problem is, it has all of the downfalls of central planning and none of the benefits. With government and private industry essentially merging, I wonder how different our system is than a centrally-planned one in reality. Cant' we say both capitalism and central planning are all about control?

Is control by private elites any better than control by government elites? I think the fear of central planning obscures some real issues. One, the key to reform is putting essential services (like banking) under democratic control. Another is to say that workers should have control over the value they produce, or at the very least have guaranteed rights. If a company is "too big to fail," clearly it should be in public hands, not private. If not, the idea of our economic system being "free" is just so much claptrap.

Incidentally, speaking of central planning, it seems like there was some merit to Wittfogel's hypothesis after all - a new paper claims that states with large central irrigation works were less likely to develop democratic governments and more likely to be autocratic:
 We show that societies with a history of irrigation-based agriculture have been less likely to adopt democracy than societies with a history of rainfed agriculture. Rather than actual irrigation, the empirical analysis is based on how much irrigation potentially can increase yields. Irrigation potential is derived from a range of exogenous geographic factors, and reverse causality is therefore ruled out. Our results hold both at the cross-country level, and at the subnational level in premodern societies surveyed by ethnographers.
In the end, it's all about elites maximizing control over resources that the rest of us need.

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