Very good piece at The G about the Soviet economy, where it all went wrong. A couple of great little points:
It had been a reasonable assumption, for nervous western onlookers in the early 60s, that a society which launched satellites must also have solved simple everyday problems such as supplying lettuces and children\’s shoes. When it turned out that it wasn\’t so, that the Hemel Hempstead branch of Start-Rite would have represented unimaginable luxury in a Soviet city, the space rockets stopped signifying a general, enviable \”high technology\”. They started looking like some pharaoh\’s pet project, a pyramid scraped together on the back of poverty, cruel and a bit ridiculous.
It was still true decades later….take the average Russian circa 1989/1990 into a standard western supermarket and they quite simply would not believe that this was reality. This was all Potemkin, wasn\’t it? There are stories of various aid and economic training missions doing exactly this with various bureaucrats in the early 1990s, taking them from Russia and parading them through some suburban Sainsbury\’s and they absolutely not believing that this was just how things were.
It even happened to me….I was living there from 91 onwards and in 93 made a quick trip to the US. Jet lag had me wandering through a supermarket at 4 am, wondering over the cornucopia. There simply wasn\’t anything like this at all back in Russia: this one food hall in a suburb of Boulder (it was, I think, a King Super) had more variety than every shop in the entirety of Moscow, a city of 10 million plus, put together.
All of the perversities in the Soviet economy that I\’ve described above are the classic consequences of running a system without the flow of information provided by market exchange;
That was, indeed, the problem. No, not the absence of capitalism, capitalists or entrepreneurs. But the absence of markets.
However, having praised this piece so far the underlying thesis has its flaws. That thesis being that the Soviets tried to get around this problem through cybernetics:
And so follows the oddest implication of the Soviet moment. It may not be over. It may yet turn out to be unfinished business. For, from the point of view of \”economic cybernetics\”, the market is only an algorithm. It is only one possible means of sharing out and co-ordinating economic activity: a means with very considerable advantages, in terms of all the autonomous activity and exploration of economic possibilities it allows, but not the only one, and not necessarily the best either, even at allowing autonomy and decentralisation. In the 20th century, devising the actual apparatus for a red plenty was an afterthought to the ideology. In the 21st century, it may be the algorithm that appears ahead of a politics to advocate it. In which case, the contest of plenties will be on again. And every year our processing power increases.
It didn\’t work and yet, with our more advanced technology, perhaps it can? Which is to ignore something from before the computer age, from Mises and Hayek. Even if you had the processing power you simply cannot know enough, cannot collect enough information centrally, to be able to calculate the economy. The only thing which can calculate the economy is the economy itself.
To be trivial for a moment: how can you set up a model of the economy that allows for the emergence of virtual red roses on Facebook? To be not trivial for a moment: imagine wheat prices rise and therefore bread prices do as a result of, say drought (as is happening now). We know that we\’re going to see some associated changes in demand for barley, oats, rice, rye, potatoes, millet and maize….as people substitute away from wheat to these other grains and carbohydrates. But we cannot, in advance, calculate what those changes in demand are going to be without knowing what are everyone\’s (yes, everyone\’s) second preferences to wheat….and possibly even their third preferences given the potential price rises in their second preferences.
This is information that we cannot possibly collect in advance: at least in part because people themselves don\’t know in advance. Your reaction to higher bread prices will in part depend upon changing fashions, has Julia just released a book on potato bread, Jamie told us all to eat polenta not pasta? this is information that we can collect, yes, in agggregate as well, but only after the fact, only by observation, only after the economy as a whole, through those markets, has done the processing for us. And while what happens this time can be used as a guide to the future, given the underlying changes in technology, tastes and desires (maybe the Atkins Diet will get another run? Who in hell knows?) it isn\’t an absolute guide to the future.
We might even, in the way that WalMart already does, be able to use cybernetics to gain a near real time picture of what is actually happening: but that still doesn\’t allow us to predict with certainty and it is prediction with certainty that we need in order to be able to plan. And even then planning doesn\’t enable us to deal with changing technology.
So while the story (it\’s the basis of a book which comes well recommended) is both great and well told, the author\’s hopeful thesis comes up against a brick wall constructed by reality. No, advances in computers are not going to be able to make planning work for we cannot, in logic let alone reality, ever have enough information to put into the planning system. For it is the workings of the economy as a whole that provide that information to us and so we can never get ahead of the game.
In short, only the economy itself can do the information processing required to plan the economy. Which means that all dreams of detailed modelling, in the detail required to plan the economy in detail, die for we simply cannot construct any other method of information processing than the economy itself.
Of course, another way of putting it is why on earth should we bother to model the economy so as to plan it, when we\’ve already got an excellent information processing and planning system: the economy?